May 11, 2016

Craters – Not Cracks – Are Finally Emerging at ICICI Bank

ICICI BANK monthly charts

The bank’s shocking performance in the last financial year should raise serious questions about its management

ICICI Bank, India’s largest private sector bank by assets, posted shocking results for the quarter ended March 31, 2016. The consensus analyst forecast for the bank’s net profit was Rs. 3,100 crores; the bank reported a paltry Rs. 702 crores. This was an annual decline of 76% (compared to Rs. 2,922 crores in 4QFY2015) and a quarterly decline of 77% (Rs3,018 crores in 3QFY2016).

In fact, the results were far worse than the reported numbers suggest.

Overall profits were inflated by including exceptional items – Rs. 2,131 crores of profits on sale of part of ICICI Bank’s shareholding in ICICI Prudential Life Insurance and ICICI Lombard General Insurance, and a deferred tax asset of Rs. 2,200 crores. These items in effect considerably negated the impact of the special provision of Rs. 3,600 crores. Excluding these two items, ICICI Bank has posted a huge loss for the quarter. The stock market penalised the bank, and the stock closed at Rs. 215 on May 5, a decline from Rs. 240 on April 28. With that, ICICI Bank lost its position as the second largest private sector bank by market capitalisation to Kotak Mahindra Bank.

ICICI Bank also finally reported that it had Rs. 44,000 crores “below investment grade” in power, iron and steel, mining, cement and rigs sectors. This was in addition to its net non-performing loans of Rs. 12,963 crores and net restructured standard loans of Rs. 8,573 crores. The bank expects its future non-performing loans to emerge from the category of below investment grade.